CPF savings sufficient to help young workers with future retirement

SINGAPORE - Young Singaporeans who join the workforce today will have accumulated enough savings through the CPF system to provide for their old age by the time they retire, especially if they make prudent choices about home ownership, a study has found.

The Occasional Paper titled 'Adequacy of Singapore's CPF Payouts: Income Replacement Rates of Entrant Workers' was released Wednesday by the Ministry of Manpower (MOM).

Using the Income Replacement Rate (IRR), which measures the ratio of retirement income to a person's earnings before retirement, the study found that those who are new to the workforce today will be able to replace most of his savings by retirement.

According to the paper, male earners will be able to replace 70 per cent of their wages while female workers will be able to replace 64 per cent of their wages by retirement .

The IRR for females is lower that that for males because of lower incomes and longer life expectancy, the report said.

However, both male and female members amongst young workers at the lower-middle income level and above will be able to meet the CPF Minimum Sum.

The IRR for Singapore's young workers are well within the World Bank's recommended IRR range of 53 per cent to 78 per cent for middle-income earners.

The average IRR amongst OECD countries is 72 per cent.

When home rental costs are included, the IRR for Singapore's young workers is higher, at 78 per cent for the median male worker and 74 per cent for the median female member. This is because unlike other OECD countries, Singapore's policies encourage home ownership instead of home rental.